Taxing tax rules sees savers miss out

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A lack of understanding of the UK tax system could mean people are needlessly gifting money to the taxman, simply because their savings and investments are not tax efficient.

New research from Fidelity International suggests high levels of tax illiteracy exist throughout the nation, with an estimated 33 million UK tax payers admitting to being confused about tax.

Over one in seven (15%) said they did not know which tax band they were currently in. Meanwhile, confusion reigned amongst those that did claim to know their band, with over a quarter (26%) of people with taxable income in excess of £50,000 believing they only pay a basic rate of tax.

It is thought such misconceptions could be the reason why much of the population fails to make the most of the tax efficient savings products available to them.

By sheltering savings in a tax efficient wrapper such as an ISA, making regular pensions contributions and making the most of capital gains tax allowances, people in all tax brackets can shelter a significant amount from the taxman.

Yet almost two in five (38%) of those surveyed said they had taken no action to make themselves more tax efficient, while a quarter believed there was nothing they could do to reduce their tax liability.

Only 15% of the nation was found to have made use of tax efficient savings and investment wrappers to help reduce their tax burden.

"By planning our savings and investment wisely, we can make them more tax efficient," said Paul Kennedy, Head of Tax and Trust Planning at Fidelity International. "Tax efficient simply means arranging things in a way so that we keep the tax on our savings and investments to a minimum...and that means more for us and less for the taxman."